QUESTION FOUR [20]

4.1 Distinguish between:

4.1.1 A participating preference share and a convertible preference share. (2)

4.1.2 Share repurchase and a residual dividend. (2)

4.2 Furn Services has experienced a reasonable trading year. They are deciding whether to pay out R124 000 in accumulated cash in the form of a dividend to shareholders or embark on a share repurchase campaign. Current earnings are R3.60 per share and the share sells for R40. Their abbreviated balance sheet before paying out the dividend is as follows: Assets Equity and Liabilities Tangible Assets R200 000 Equity R310 000 Inventories 20 000 Debt R 90 000 Receivables 30 000 Bank/cash 150 000 Total 400 000 Total R400 000 Required: Evaluate each alternative (i.e.: pay the dividend or repurchase the shares) by:

4.2.1 Calculating the number of shares in issue. (2)

4.2.2 The Dividends per share (for the first alternative, i.e. pay the dividend) (2)

4.2.3 Calculate: 4.2.3.1 The new share price (6)

4.2.3.2 The EPS (4) 4.2.3.3 The Price- earnings ratio